Exam 3 - Repeat 1 An all equity firm has a return on assets (ROA) of 13.60 percent. The firm makes the decision to replace 30% of its equity with debt that has a before-tax cost of 8 percent (the firm's tax rate is 40 percent). Calculate the firm's new ROE after the debt has been issued and equity has been repurchased (hint: leverage effect and tax shield effect). Answer: 17.37% See, for example, Q23, Old Exams, Module 6 1